A proposal to apply the Kiwi-VAT to insurance services in the European Union

Abstract

In the spirit of the European Commission’s call for a simpler, more robust and efficient VAT system, this article proposes to integrate exempt insurance services into the European VAT, and to abolish the discriminatory, excise-type insurance premium taxes levied by the various Member States. The current VAT exemption (no taxation of insurance services and no credit for the VAT on inputs) is administratively complex and economically distortionary. Instead, the value added of property and casualty insurance companies can be taxed on a transactions basis by applying the VAT to insurance premiums (creditable by VAT-liable businesses) and allowing a presumptive tax credit for the VAT imputable to payouts (plus a credit for the actual VAT on purchases). The presumptive tax credit should be taxed at the level of business recipients, but individuals would receive the VAT along with indemnity payments without having to file a return. Exceptionally, the tax-credit VAT would not be applied to life and health insurance premiums, but insurers would be taxed on an accounts basis on the sum of wages and business cash flow.

European Commission (2007a). Proposal for a Council Regulation laying down implementing measures for Directive 2006/112/EC on the common system of value added tax, as regards the treatment of insurance and financial services. COM(2007) 746 final (28 November), Brussels.
Google Scholar

European Commission (2007b). Proposal for a Council Regulation amending Directive 2006/112/EC on the common system of value added tax, as regards the treatment of insurance and financial services. SEC(2007), 1555 (28 November), Brussels.
Google Scholar

European Commission (2010b). Commission Staff Working document, accompanying document to the Green Paper on the future of VAT: towards a simpler, more robust and efficient VAT system. SEC(2010), 1455 final, Brussels.
Google Scholar

European Commission (2011a). Summary report of the outcome of the Public consultation on the Green Paper on the future of VAT: towards a simpler, more robust and efficient VAT system, Brussels, Directorate-General Taxation and Customs. TAXUD.c.1(2011)1417007 (2 December), Brussels.
Google Scholar

European Commission (2011c). Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee on the future of VAT: towards a simpler, more robust and efficient VAT system tailored to the single market. COM(2011) 851 final, Brussels.
Google Scholar